Ag News, January 14, 2014

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What’s Ahead for Land Values in 2014?

Our crystal ball again proved cloudy at the start of 2013 as we called for an increase in farmland values of 10% to 15%. That seemed like a cautious call in the wake of the 24% surge posted in Iowa in 2012 and the extraordinary prices being paid at auctions all across the Corn Belt.
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As Congress bears down on the farm bill…

As Congress bears down on the farm bill…with a deal between House and Senate negotiators just days away and passage within a few weeks… lawmakers are poised to OK about the same total tab (around $950 billion over 10 years) they penciled in for the legislation more than seven months ago.
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What Is The Real Issue?
An Editorial from The Ferguson Ag Report

Exactly one year ago, AgReport printed a front-page article entitled, “Grain Land @ $20,000 Per Acre.” An Iowa farmer had just paid a “record” $20,000 per acre for some 74 acres of corn/soybean land which was located nearby. That probably qualifies as “old news” now since someone with either more money or credit-to-burn has very likely paid an even greater sum per acre for a much larger tract.

Without knowing the situation’s complete details, questions were being voiced rather widely regarding whether the purchaser had actually cast away all good judgment. Remember, however, popular dogma at the time was still insisting U.S. agriculture had entered a “radically different economic era” permanently in which $7-8.00 corn and sky-high land prices were permanent, “new norms.”

AgReport’s response to the thinly veiled condemnation was simply, “Perhaps ‘yes,’ perhaps ‘no’…it depends.” Very likely, those six words startled a huge percentage of AgReport’s readers. Why? Because the publication’s publisher has a long, consistent history of cautioning U.S. and Canadian producers to balance the attendant risks of paying elevated prices for crop and pasture land with carefully determined amounts of rented land.

Simple reality is the only practical difference between paying $8,000…$20,000…or even $50,000 per acre is a function of zeros. It doesn’t require a mathematical wizard to determine clearly that none of the three levels is even remotely self-supportable as a conventional, stand-alone investment. Even so, paying those stratospheric amounts for a desired tract is literally immaterial if a buyer can pay all Cash without sacrificing personal or business financial stability.

The only pertinent financial question in such instances is whether a 100% Cash purchaser will be satisfied with whatever low-to-loss Return On Investment finally evolves. A valid response maintains why take business risks to become reasonably wealthy if an individual cannot enjoy acquiring whatever generates an intense feeling of fulfillment?

Conversely, serious financial struggles…often acute disaster…are inevitable for those individuals who pay significantly premium prices for sizable purchases of land, machinery, storage facilities, etc. while requiring major amounts of Debt financing. Potential difficulties are inevitably compounded when the same producers are also dependent upon abnormally high prices for grain and livestock, or whatever they produce.

The common culprit in most financially troubled farms and ranches is consistently excessive Debt. But, the central question becomes simply, “How much is too much?” Unfortunately, far too many U.S. producers, and even their advisors, are convinced that no dependable method of developing a realistic answer for an individual farm or ranch exists until its “financial roof” caves in.

Simply stating that too much Debt is present in a troubled situation without identifying exactly how much constitutes an all-too-obvious cop-out that accomplishes very little constructively. Fortunately, extremely productive business and financial measurements with accompanying guidelines can produce effective analysis of what needs to be done and in what time frame.

How, for example, is Total Debt structured…particularly concerning Current Liabilities? Practical Ferguson System guidelines do exist regarding Current Liabilities % Of After-tax Profit…Current Liabilities % Of Total Revenue…Debt Added Per $ Of New Sales…Interest Expense % Of Total Revenue…etc., etc.

An all-too-common roadblock to developing strategically crucial financial information, however, is the amazing fact that a frustrating percentage of struggling producers just don’t want to know the true and complete status of their own operation’s financial condition. Why? Because banking regulations require that such financial information be shared with their lender[s]. Perhaps that reluctance from borrowers is why some lenders feel they are being treated like mushrooms… kept in the dark and fed a steady diet of manure.

Another common obstacle involves a substantial number of producers’ unwavering insistence that lenders forgive huge amounts of a past-due loan’s Principal…without realizing the consequences of what is being demanded. Banks typically have about 8-10% Equity, thus 90-92¢ of every dollar loaned belong to various depositors which are quite often retired individuals and widows raising minors. Should their funds really be at risk?

Rescuing the perishing in a troubled, U.S. agricultural operation normally requires applying proven financial logic…not a miracle from above. The fact that U.S. agriculture as an overall sector has been attractively Profitable consistently for at least the past 35 years constitutes a major advantage in applying what needs to be done! Moreover, official data also reveal that USDA farm subsidies have typically provided only 2-6 percentage points of the sector’s Total Cash Profitability.

So, the real issue is actually elemental. Eliminate all excessive Current Liabilities to comfortably supportable levels. Focus on being able to be Profitable at pre-drought influenced prices. Be prepared psychologically and financially for land values to decline 40% or more during the next 2-3 years. While a dramatic, agricultural downturn may not occur…be prepared if it does.

Accrual Accounting for Ag?
By Roy C.Ferguson II, CMC/CAC

Current IRS Regulations permit U.S. farms and ranches to use Cash Accounting for reporting their Taxable Income…unless they are structured as a C-corporation having Gross Receipts exceeding $1 million, or as a Family Corporation with Gross Receipts of more than $25 million. The key advantages include the flexibility of Accelerating Expenses to when actually paid as well as Deferring Income to when Cash is actually received in order to reduce Taxable Income to minimal levels.

Producers have had the flexibility of using Cash Accounting for decades and have made a variety of crucial business decisions based upon expectations that the flexibility will continue. Various CPA firms and university agriculture economists have observed that eliminating Cash Accounting will almost certainly change the Income Tax liability substantially for numerous farms and ranches.

Moreover, Cash Accounting is generally regarded as being a much simpler method of recordkeeping for most U.S. producers than either Accrual Accounting or Management Accounting. Spokespersons for various national accounting firms have reportedly indicated that Cash Accounting also provides vital flexibility to coordinate with an operation’s actual Cash Flow. In fact, one large regional firm stressed that Cash Accounting allows agricultural operations to compensate for Commodity Price Volatility, thus creating greater Financial Stability

A requirement for U.S. farmers and ranchers having Gross Receipts of $10 million or more to use Accrual Accounting for tax purposes is criticized for placing an unnecessary burden on many midsize farmers, ranchers, dairies, plus other livestock and poultry producers. Some critics contend that Accrual Accounting requires significantly greater time and Costs than Cash Accounting.

Doubt also exists in some circles that Congress will actually pass legislation requiring changing to Accrual Accounting in U.S. production agriculture. Conversely, potential adoption of Internationally Accepted Accounting Principles as is currently being proposed with increasing vigor will almost certainly eliminate using Cash Accounting in most of today’s commercial farms and ranches. Some 95% of current ag tax reporting is via Cash Accounting.

ARA / RPRA 2014 Application Deadline: March 1, 2014

For anyone planning to go for their ASFMRA Appraisal designation this year (ARA and RPRA only), time is winding down to get your application in to us!  Please submit your application with your appraisal demo by the March 1, 2014. If you have any questions or concerns, please contact Debe Alvarez at dalvarez@asfmra.org or at (303) 692-1225. INSERT LINKS.

For a complete list of requirements for obtaining the ARA or RPRA designation, please click here for the ARA checklist, or here for the RPRA checklist.

Outlook improves for U.S. dairymen
From Capital Press

Lower feed costs in 2014 are improving the profit outlook for dairy producers, according to the December Livestock, Poultry and Dairy outlook by USDA’s Economic Research Service. ERS forecasts the 2013/14 corn season average price at $4.05 a bushel to $4.75 a bushel – down from the average of $6.90 in 2012/13, according to the Livestock Marketing Information Center. The preliminary November alfalfa price slipped to $188 a ton, well below last year’s November price of $215 per ton, according to ERS.“ On balance, dairy producers will likely face even lower feed prices next year compared with 2013,” ERS reported. The economists slightly increased last month’s forecast of the 2014 dairy herd from 9.245 million cows to 9.250 million cows, and the yield per cow from 22,170 pounds to 22,190 pounds. Milk production in 2014 was raised from 204.9 billion pounds to 205.3 billion pounds. <more> Dec. 30, 2013 Capital Press. Continue reading: http://www.capitalpress.com/article/20131230/ARTICLE/131239993/1019

The Press Enterprise: EDITORIAL: Fend off California’s drought menace

The first snow survey of 2014 took place last week and, as expected, the findings were dismal. Media outlets across the state covered this news, highlighting the record dry conditions that the state faces. With numerous low precipitation records being shattered it highlights the need for a reliable state water supply system – something The Press Enterprise editorialized on recently. Read more: http://www.pe.com/opinion/editorials-headlines/20140104-editorial-fend-off-californias-drought-menace.ece

Membership Survey Closes January 15

ASFMRA has so much going for it. We are experiencing a growth in younger members, an increase in interest in the designations, and strong support for our annual meeting and summer education week programs.  
 
What we need now is more input from you to further help us refine what we offer. Please complete the annual membership survey to give your input for the future of ASFMRA!  The ASFMRA Executive Council will be meeting in February to review the direction of the organization. In order to make the best decisions possible for ASFMRA, we need your feedback and input.
 
The 2014 Membership Survey is now open and waiting for your comments. Grab your coffee and take 10-15 minutes to help guide ASFMRA in a new direction in the coming year!
 
Need more incentive? Three individuals completing the survey will receive complimentary registrations to the ASFMRA Annual Meeting in Tucson, Arizona scheduled for October 27 – November 1, 2014 at the J.W. Marriott Star Pass. Act fast; the survey will close on January 22, 2014.
 
If you have already completed the survey, thank you!  If you have not yet done so, please share your input before the survey closes on January 15, 2014. 
 
The survey can be found at https://www.surveymonkey.com/s/2014_Membership.

Verify Your Information for the 2014 ASFMRA Membership Directory

Deadline is January 15, 2014
It’s that time of year again! Production is underway for the 2014 ASFMRA Membership Directory which is one of the Society’s most valued benefits of membership. As we all know, the directory’s value is only as good as the accuracy of the information in it.

Verify and/or Update Your Information
Is your information correct and up to date? Here’s how to make sure.
1.    Go to the ASFMRA Web site (www.asfmra.org)
2.    Log in (Your username is your first and last name altogether, no space and your password is your member ID number)
3.    Choose Update Profile and review your information
4.    If there are changes that need to be made, choose from the drop down menu Modify My Record and click Go
5.    Your information will be listed and you can make any necessary changes. Then simply click Submit Changes. It is that easy!
6.    If you need to change your company name, simply choose Change Company Affiliation from the drop down menu instead of Modify My Record. Click Go, type in your new company name, and click on Submit. It’s that easy!

The deadline for updating your information is January 15, 2014. If you miss it, your information in the 2014 ASFMRA Membership Directory may not be correct.

2014 Standard Mileage Rates 

IR-2013-95, Dec. 6, 2013
WASHINGTON — The Internal Revenue Service today issued the 2014 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.
Beginning on Jan. 1, 2014, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:
• 56 cents per mile for business miles driven
• 23.5 cents per mile driven for medical or moving purposes
• 14 cents per mile driven in service of charitable organizations
The business, medical, and moving expense rates decrease one-half cent from the 2013 rates. The charitable rate is based on statute.
http://www.irs.gov/2014-Standard-Mileage-Rates-for-Business,-Medical-and-Moving-Announced

In Memory
Ronald G. Kettle, ARA

Craig, Colorado
The ASFMRA was honored to welcome Ron into the membership in 1981. He joined the Society as a Professional member and then obtained his Accredited Rural Appraiser (ARA) designation and went to the Accredited membership classification in 1985. He was a member of both the Colorado and Wyoming Chapters. Ron served on the National Public Relations Committee. He passed away on January 10, 2014. Funeral arrangements are being made. Ron made many friends through his association with the ASFMRA who will miss him greatly. Our thoughts and prayers are with his wife, Marie, and his family.

In Memory
Robbin Peterson, ARA

Templeton, CA
The ASFMRA was honored to welcome Robbin into the membership in 2002. She obtained her Accredited Rural Appraiser (ARA) designation in 2008 and maintained her Accredited membership with the Society. As noted by Lorrain Friant, AFM, ARA, AAC “When I think of Robbin, I think of someone who was extremely adventurous, compassionate, and hard-working. She had a bucket list for grand adventures, which most recently included a solo trip through China and Russia. In her spare time, she dedicated her time and energy to the San Luis Obispo Humane Society focusing on feral cat communities. She will be missed by her co-workers, friends, and family.” Robbin made many friends through her association with the ASFMRA who will miss her greatly. Our thoughts and prayers are with her family.

News & Announcements from The Appraisal Foundation

2014-15 EDITION OF USPAP NOW EFFECTIVE

The Appraisal Foundation, the nation’s foremost authority on the valuation profession, announced that the 2014-15 edition of the Uniform Standards of Professional Appraisal Practice (USPAP) is now officially effective as of January 1, 2014.  USPAP is the generally accepted standards of practice for the appraisal profession in the United States, and congressionally authorized for real estate appraisers.
For highlights about the changes contained in the 2014-15 edition of USPAP, click below to:

•View a video discussion highlighting the changes.
Read the Q&A issued by the Appraisal Standards Board (ASB).
Review a detailed document describing the changes 

The Appraisal Foundation is pleased to announce that the Appraisal Standards Board (ASB) has issued the First Exposure Draft of proposed changes for the 2016-17 edition of the Uniform Standards of Professional Appraisal Practice.

Link:  https://appraisalfoundation.sharefile.com/download.aspx?id=s1734ec0d8744bee8
Issued on January 7, 2014
Written comments requested by February 17, 2014
Send Comments to ASBComments@appraisalfoundation.org
Questions?  Please contact Emily Mann, Standards Administrator, 202.624.3058

Call for Applicants

The Appraisal Foundation Seeks Candidates for
Vacancies on the Appraisal Practices Board
Application Deadline is March 10, 2014
The Appraisal Foundation has begun its annual search for qualified candidates to serve on the Appraisal Practices Board (APB).  Completed applications for the vacancies must be received by March 10, 2014.
There are up to three vacancies on the board.  The Appraisal Foundation is always interested in expanding the diversity of its boards by considering applications from business leaders with an interest in valuation or individuals involved in various appraisal disciplines such as business valuation or personal property.
Applications for the positions outlined above are now available on-line at The Appraisal Foundation’s website at:  https://appraisalfoundation.sharefile.com/d/s2c711c4e50642bb9.

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